Market Watch

The Sky is Falling

Jan 18, 2013

Market Watch with Alan Brugler

January 18, 2013

The Sky Is Falling

Chicken Little is famous for running around proclaiming that "the sky is falling". While the chicken’s conclusion was based on a false assumption (an acorn to the head caused the belief), you can’t excuse cattle traders from feeling a little bit like that same sky fell in on them this week (with a similar false assumption). After weeks of talk about beef production running 3-5% below year ago throughout 2013, longs had been comfortable with $130-140 futures discussions even if those would require record high consumer level prices. Those same tight cattle supplies turned out to be a liability this week, as Cargill announced that it will close its Plainview, TX facility on February 1 due to an ongoing lack of sufficient cattle numbers in the area. In the long run, all of the cattle will be slaughtered, and beef supplies will still be smaller than year ago. In the short run, the closing announcement created some potentially homeless cattle and downward pressure on both cash bids and futures. Beef prices got in on the act, with buyers sitting on their hands to see just how cheap things could get.

Corn futures shot up 4.9% two weeks ago, and another 2.65% this past week. USDA found only 8.03 billion bushels of corn stocks on December 1. That just confirmed what the cash market was already telling us. Old crop corn stocks are tight, and first quarter use was stout due to reduced DDG production and some new crop grain that was pulled into the consumption pipeline back in July and August. USDA knocked 200 million bushels off of projected exports on January 11 due to lack of sales, but ending stocks are still seen shrinking to 602 million bushels. Weekly export sales through January 10 were the strongest since April 2012 @ 393,300 MT.

The soybean market posted a 4.08% advance for the week. The biggest cause for concern was the lack of a bullish response to large export sales announced by the USDA on Thursday at 1.6 MMT. It is still a bear market when bull news fails to make it move higher. Fortunately for producers, the gains on Wednesday and Friday offset the "sell the fact" attempt on Thursday. What we are looking for is bear news that fails to make it go down. At that point, things are fully priced. On Friday, a Memphis based forecasting firm reduced its projected 2013 soybean acreage to 78.77 million, just a little above our own number.

CBT Wheat was again the strongest of the three exchanges, up 4.8% for the week. KC was up 4.1% and MPLS was up 3.1%. The Dec 1 stocks number was only 1.66 billion bushels, requiring an upward revision in feed use. USDA reported weekly export sales of 574,700 MT. That was about 5 million bushels larger than the trade guesses. The previous week, net sales were only 233,700 MT. KC futures were buoyed by both short term and long term weather forecasts. In the short term, snow cover is lacking and there is a risk of winterkill. In the longer term, the drought maps still cover most of the Plains HRW area, and the NOAA 90-day forecast calls for above normal temps throughout the central US, with below normal precip across the South.

Cotton prices were up 3.9% this past week. The tighter US ending stocks forecast at 4.8 million bales is supportive, but the main story is active world buying of US cotton despite projected record large world cotton surplus stocks by the end of the marketing year on July 31. USDA sees world ending stocks @ 81.72 million bales. That represents 77% of this year’s total use, or a 281 day supply. Of the 81.72 million bales, USDA thinks China will be holding 40.61 million, which is more than this year’s consumption (35.5 million) for them.It would be drawn down quickly if Chinese consumption returned to 2010/11 levels of 46 million bales annually. China only produces 30-34 million bales annually. China continues to be an active importer. US weekly export sales totaled 339,000 RB of upland and 28,700 RB of pima cotton. This was a six-week high.

Commodity

Weekly

Weekly

Month

12/28/12

01/04/13

01/11/13

01/18/13

Change

% Change

Mar

Corn

$6.94

$6.80

$7.09

$7.28

$0.19

2.65%

Mar

CBOT Wheat

$7.79

$7.47

$7.55

$7.91

$0.36

4.84%

Mar

KCBT Wheat

$8.26

$8.06

$8.11

$8.44

$0.33

4.10%

Mar

MGEX Wheat

$8.68

$8.43

$8.47

$8.74

$0.27

3.13%

Mar

Soybeans

$14.18

$13.67

$13.73

$14.29

$0.56

4.08%

Mar

Soybean Meal

$424.80

$399.00

$404.30

$414.40

$10.10

2.50%

Mar

Soybean Oil

$49.44

$49.90

$49.24

$51.68

$2.44

4.96%

Feb

Live Cattle

$133.58

$132.95

$130.60

$124.95

($5.65)

-4.33%

Jan

Feeder Cattle

$152.03

$153.18

$149.88

$143.90

($5.97)

-3.99%

Feb

Lean Hogs

$86.38

$86.23

$84.20

$85.35

$1.15

1.37%

Mar

Cotton

$74.66

$74.91

$75.62

$78.55

$2.93

3.87%

Mar

Oats

$3.49

$3.33

$3.47

$3.56

$0.09

2.52%

Mar

Rice

$15.27

$15.29

$15.22

$15.16

($0.06)

-0.39%

Cattle futures plunged 4.33% after being down 1.77% the previous week. The sell off started out as a technical play, with Head & Shoulders tops in several contracts. It soon proved to be more than that, as Cargill announced that it would be closing its Plainview, TX slaughter plant due to an extended lack of adequate cattle numbers. The tight numbers are supportive, but in the short run the announced February 1 closing was expected to result in a lot of homeless cattle and downward pressure on cash cattle prices. Weekly beef production was 1.2% smaller than last week, but up 2.0% from the same week in 2012. Average carcass weights are still an estimated 21 pounds per animal higher than last year at this time. Wholesale prices were down $4.40/cwt for Choice boxes, a 2.3% slide. Select was also down, but a more orderly 0.5%.

Hogs were up 1.4% for the week. Estimated weekly slaughter was 2.227 million head, down from 2.284 million head the previous week. Pork production was down 2.3% from the previous week, and down 0.3% from the same week in 2012. Average weights are still running 2 pounds below year ago, helping to limit the tonnage a little bit. The pork carcass cutout value dropped 27 cents for the week, a loss of gain of 0.32%.

Market Watch: The markets are closed on Monday for the ML King holiday in the United States. USDA offices are also closed, so the regular Monday and Thursday reports for Export Inspections and weekly Export Sales will be delayed until Tuesday and Friday respectively. USDA will issue the month Cold Storage report on Tuesday afternoon, with monthly Milk Production on Wednesday.Friday will feature the monthly USDA Cattle on Feed report. It will also mark the expiration of the February options for a number of grains and oilseeds.

Brugler Marketing has a lot more information available than that contained in these free weekly columns. For a full two day educational experience and our complete 2013 outlook for global ag markets, attend one of the two Brugler Marketing Winter Seminars. Our Dayton, OH seminar is January 29-30, and Omaha, NE will be held February 4-5. For details and online registration, visit our web site at https://www.bruglermarketing.com.

There is a risk of loss in futures and options trading.Such trading is not appropriate for all individuals. Past performance is not necessarily indicative of future results.Comments made in this article are in no way to be seen as an endorsement of futures and options trading. Reproduction or rebroadcast of any portion of this article without written consent of Brugler Marketing & Management LLC is strictly prohibited.Call 402-697-3623 for information on our individualized subscription and consulting services. Visit our web site at https://www.bruglermarketing.com for more information on our consulting and advisory services for farm family enterprises and agribusinesses.